Recently I linked to an article by Sam Mattera on Motley Fool. Mattera posited that Apple will be crushed if smartphone subsidies go away.
Today, former Apple executive Jean-Louis Gassée writes a fantastic rebuttal piece – slamming mobile carriers for their shameless whining about iPhone subsidies.
Carriers should stop whining; these are robust companies run by intelligent businesspeople with immense resources at their disposal…. Assuming they bleed an extra $200 when subsidizing an iPhone (or a top Samsung handset, now that the Korean giant followed suit), they only need $8/month in extra subscriber revenue from the “offending” smartphone. And yet here we are: Randall Stephenson, AT&T’s CEO, predicts the end of subsidies because “wireless operators can no longer afford to suck up the costs of customers’ devices”.
I don’t know if Stephenson is speaking out of cultural deafness or cynicism, but he’s obscuring the point: There is no subsidy. Carriers extend a loan that users pay back as part of the monthly service payment. Like any loan shark, the carrier likes its subscriber to stay indefinitely in debt, to always come back for more, for a new phone and its ever-revolving payments stream.
I was told as much by Verizon. In preparation for this Monday Note, I went to the Palo Alto Verizon store and asked if I could negotiate a lower monthly payment since Verizon doesn’t subsidize my iPhone (for which I had paid full price). Brian, the pit boss, gave me a definite, if not terribly friendly, answer: “No, you should have bought it from us, you would have paid much less (about $400 less) with a 2-year agreement.” My mistake. Verizon wants to be my loan shark.
Totally agree. And as I’ve pointed out before. Apple can happily provide users with an interest free loan to purchase their iPhone.